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Yahoo just reported that nine universities have received millions of donations from a donor who not only has not been identified but who has required the schools to agree not to try to find out the identity of the donor. The gifts came through lawyers or other middlemen and came in the form of cashier's checks or checks from a law firm. The donor stipulated that most of the money must be used for scholarships, with some available for research and other needs.

The schools receiving money are Purdue ($8 million), University of Iowa ($7 million), University of Southern Mississippi ($6 million), University of North Carolina at Greensboro ($6 million), University of Maryland University College ($6 million), University of Colorado at Colorado Springs ($5.5 million), Norfolk State University ($3.5 million), Penn State-Harrisburg ($3 million), and the University of North Carolina at Ashville ($1.5 million).

The donor may be an individual or a group of donors acting together. The only thing certain is that the universities are thrilled with the gifts, especially given the current need for more scholarship money.

Director Danny Boyle, Producer Christian Colson and the team of filmmakers who produced the movie Slumdog Millionaire have pledged $475,000 to a five-year program intended to improve the lives of children living in the slums of Mumbai and operated through Plan, an international charity.

Another recent story, this one posted by moneycontrol.com, an Indian news site (ok, I admit I saw it first on Yahoo but it's been removed from that site) reported that Chief Minister Raman Singh has declared that Slumdog will be exempt from the entertainment tax for a year.

In a recent opinion, Maddux v. Commissioner, T.C.Summ.Op., 2009-30, the Tax Court ruled that a taxpayer could not use a carryover charitable deduction that had expired. Note that this case was heard pursuant to section 7463 and the opinion cannot be cited as precedent.

In the course of an audit of the taxpayer's 2002 return, the IRS determined that the taxpayer had a charitable contribution carryover from 2002, as permitted under section 170(d)(1). The taxpayer assumed that the carryover could be used at any time in the subsequent five years, and took some of the deduction in 2005. The Tax Court explained that the carryover is to be treated as a deduction in each of the five succeeding years and that some amount expires each year, whether or not the deduction is used. Thus, when the taxpayer tried to use the carryover in 2005, some of the amount had already expired.

Thanks to Patricia Brosterhous and her IICLE Flashpoints (a free electronic newsletter produced by the Illinois Bar) for pointing out this opinion.

The press has been reporting about underwater endowment funds and the problems for charities that cannot spend endowment money due to state laws. The information often is not quite right.

UMIFA, still the law in fewer than 20 states, provides a default rule that governs endowment spending. If a charity and a donor did not agree otherwise when the donor made the gift, then UMIFA says that the charity can spend from the endowment the amount of appreciation (the amount above the original gift value - termed historic dollar value in UMIFA) that the charity determines to be prudent. UMIFA does not address the spending of income, and the assumption is (without case law but with guidance posted on the NY AG's website supporting this understanding) that a charity can continue to spend "income" (interest and dividends but not capital gains) even if the fund is underwater. Thus, the statements in the press that a charity cannot spend from an underwater fund are wrong. In most cases the charity would not spend in those circumstances, but the legal rule is not quite the way it is usually described.

Thirty states plus the District of Columbia have adopted UPMIFA, and that new statute is effective in some states and will become effective in others this year or next. In addition to the 31 enactments, bills are still pending in a number of states. UPMIFA permits a charity to spend from an endowment fund the amount it determines to be prudent, keeping in mind the long-term nature of the fund. Historic dollar value no longer provides a sort of guidance, but the absence of historic dollar value from the law may not mean that charities will be eager to spend if funds drop too far below their recent values.

The difficulty from the charity's standpoint is a practical one as well as a legal one. What amount can a board prudently authorize for spending when a fund is down 30% - or more? Some charities may find it prudent to increase spending, so that important programs and services will not be cut. Others may curtail spending until the funds' values rebound. Spending now means that getting the fund back to a value that it had as recently as last year will take longer. But deciding not to spend may mean that scholarships are not paid or programs are cut. The choice is not an easy one for charities, and each charity must examine its own needs and make its own prudent decision.

Stephanie Strom of the New York Times reports that colleges are finding scholarships a more effective goal for fundraising than buildings or new programs, common fundraising goals just a year ago. Donors understand that more students need financial aid now, and many colleges have increased the aid available to their students. To do that, the colleges need to raise money and are turning to donors for help.

Although giving is down, donors are responding to the need for more financial aid. The annual giving director at Hamilton College reports that annual giving for that school is flat as compared with last year - but "flat is the new up" so he's happy. The college surveyed alumni and learned that 90% of those who responded wanted their gifts to go to scholarships. The fundraising campaign has responded to those concerns.

Some schools have asked the donors who created endowed scholarship funds for a little extra annual gift to cover the scholarship distribution this year. A fund created recently might have fallen in value and be "underwater" (under its original gift value). If so, the fund might not be able to spend (if UMIFA applies in that state and if the college did not arrange for a different spending rule in the gift agreement with the donor). For example a fund valued at $100,000 before the market drop might have been paying out $5,000 a year as a scholarship. If the fund has dropped in value, a school might ask the donor for an extra $5,000 this year, so that the scholarship can still be paid.

Internal memoranda released by the IRS in the past few days indicate a view of a senior lawyer at the IRS that the commensurate-in-scope doctrine has little continuing relevance. The internal memoranda were released in compliance with a FOIA lawsuit brought by Tax Analysts. The memoranda date from July 2007. They are available for photocopying at the IRS' reading room in Washington, D.C., but they have not been released electronically.

The two memoranda were both written in response to exemption requests. In one case, an organization was created to accept donations of yachts, sell the yachts, and distribute the proceeds to charity. An initial proposal to deny exemption based on the failure to carry on a charitable activity commensurate in scope with the organization's resources was the subject of the memorandum. The reviewer found that the activity was not a typical commercial activity and that the commensurate-in-scope doctrine "was severely compromised" by the enactment of IRC 4942.

The second memorandum involved a nonprofit management organization that operated several charter schools through contracts with three private foundations. The proposal to deny exemption was based on the similarity between the activity carried on by the organization and activities conducted by for-profit companies managing schools. The same senior technician reviewer in the Office of the General Counsel, Michael Blumenfeld, said that competition in education by for-profit companies should not affect the exempt nature of educational activities that furthered purposes set forth in 501(c)(3).

In a Letter to the Editor published in the April 6 issue of Tax Notes, Prof. Nina Crimm of St. John's University proposes a way to deal with toxic assets held by banks. In "A Hybrid Nonprofit Model: Private Investors and Banks' Legacy Assets," she notes that banks have had trouble finding private-sector buyers for the toxic assets, and she proposes that the government provide tax incentives to encourage purchasers. The idea would be to provide an income tax exemption for gains realized by the private-sector purchasers from later dispositions of the assets. Losses would remain deductible, so the purchaser of the assets would get the best of both tax worlds. The tax exemption might be sufficient to overcome the current market failure - the lack of buyers for the assets at purchase prices enticing to banks. (Precedent for such a tax subsidy exists in the form of an income tax exemption for charities that theoretically relieve a governmental burden where there is a market failure.) The Treasury would have to analyze the cost, of course, but given the magnitude of the current problem, the cost might be worth it.

The Boston Globe reports that in Massachusetts and around the country mergers involving nonprofits have become more common. As the economic conditions worsen, nonprofits find strength, the ability to work more efficiently, and in some cases survival, by joining forces. The article describes three recent mergers and talks about a general willingness to consider collaboration and even merger in ways that were unlikely not long ago.

Jeff Skoll, the first president of E-Bay has poured $100 million into a new foundation, the Skoll Urgent Threats Fund. Mr. Skoll has been engaged in philanthropy in a number of creative ways already, and now has become concerned that some of the major threats facing the world - water shortages, pandemics, and the problems in the Middle East - will undermine attempts to address other social problems. Mr. Skoll will seek additional support for the Fund and also plans to add more of his own money. Dr. Larry Brilliant who until February led google.org, the Google philanthropy, will step in to lead the Skoll Urgent Threats Fund. For the New York Times story on the new Fund, go here.

The IRS has published a "dirty dozen" list of tax scams taxpayers should avoid. These include things like phishing and hiding income offshore. Number 4 on the list is "Abuse of Charitable Organizations and Deductions." The abuse identified includes attempts by donors to improperly shield income or assets, attempts by donors to maintain control over assets, and overvaluations involving non-cash assets. The IRS also notes schemes under which a charity agrees to take a donation with the understanding that the donor can buy back the asset later, at a price set by the donor. The IRS reminds taxpayers of increased penalties for inaccurate appraisals.

Stephanie Strom reports today in the NY Times about the Ford Foundation's re-structuring. A new president, Luis A. Ubinas (the n should have a tilde: ~) arrived two years ago, from McKinsey & Company, a top consulting firm. Bringing strategic planning/consulting skills with him, Mr. Ubinas has led an internal examination of Ford's management structure. The goal of the examination was to ensure that the Foundation's resources were aligned in the most effective way to carry out the Foundation's mission. The result, according to the President's message posted on the Foundation's website, is a recommitment to the mission and the values of the Foundation and a new management structure based around eight significant social justice issues, each of which is grounded in the mission and history of the Foundation. The new structure will reorganize individual initiatives, in the past numbering more than 200, into 35 "lines of work." A team of program managers will manage a group of lines and will report to a director responsible for that group. The reorganization shifts from individual managers to a more team-oriented approach. The Foundation's website provides the President's message about the "comprehensive set of new strategies," and also provides information about each of the eight issues around which the new strategies are organized.

Like many other foundations, Ford saw a 30% drop in its assets last year. It raised $22 million for grants by cutting costs internally, and it expects to continue to cut costs where possible,with all savings devoted to grant-making. The Foundation remains the second largest in the US, after the Bill and Melinda Gates Foundation.

The IRS has posted the text of remarks made by Lois Lerner, Exempt Organizations Director for the IRS, at the Georgetown Law CLE on April 6. Her topic, "Maintaining Public Trust in Charities During the Economic Downtown," is a concern for charities as well as the IRS, and it is interesting to see the view of the IRS on how it hopes to help charities maintain that trust.

After noting the economic troubles facing most charities, Ms. Lerner said that the IRS does not want to exacerbate the problems inadvertently through needless inflexibility and the IRS will be aware of the difficulties exempt organizations are facing. The IRS is concerned that during times of economic hardship, there is often a rise in questionable or even fraudulent activity, aggressive or inappropriate fundraising activity, and shady tax avoidance schemes. The IRS intends to monitor carefully exempt organizations, seeking to curtail abuse. The IRS will pay particular attention to mortgage-assistance nonprofits, aggressive fund-raising tactics and valuation manipulations, and increases in unrelated-business activity. She also suggested that charities themselves could do a number of things to keep public trust in the sector. Increased transparency through the new 990 should help, and she cautioned charities (and their advisors) to take care in presenting themselves positively through the 990. She recommended that charities focus on governance practices, to make sure that good policies are in place, and she suggested that charities review executive compensation packages to make sure they can withstand public scrutiny. Ms. Lerner also spoke about a likely increase in merger and reorganization activity, not typical in the nonprofit sector. Although many of the issues involved, including donor intent issues, fall within state law, she offered assistance from the IRS to help charities work through potential merger issues. Finally, Ms. Lerner noted that the EO Division will be hiring additional staff, to make the scrutiny she discussed feasible.

The IRS is seeking comments on the effectiveness of the Exempt Organization Division's website. Announcement 2009-25 lists a number of specific things to consider, and it also seems a good time to let the IRS know if you've had troubling finding something, have a suggestion on how to improve the web site, or have a complaint about the site. Comments go to EO.Web.Comments@irs.gov. Curiously, the web address provided in the announcement seems to be wrong. The announcement directs the reader to www.irs.gov/eo but that page doesn't exist (at least on my computer) and the user is switched to www.irs.gov/charities. Makes one worry just a little, but the site itself has a lot of useful information.

In Announcement 2009-26, the IRS requests help with an initiative to develop outreach and education programs targeting educational institutions that offer degree programs related to the nonprofit sector. The Customer Education and Outreach function of the Exempt Organizations division of the IRS seeks to provide educational programs to help exempt organizations better understand their tax responsibilities. Because students studying nonprofit management and other aspects of the sector may one day hold leadership positions in the nonprofit sector, reaching out to those students, through this new initiative, seems a good way to have an impact on future leaders.

The Announcement requests two sorts of assistance, both general comments and more in depth comments from volunteers who may be individuals or representatives of institutions. The Announcement indicates that the IRS "might not be able to accommodate all volunteers" but that it will ensure that a wide range of viewpoints are represented.

Comments may be sent by email to academic.initiative@irs.gov. The email's subject line should include "Announcement 2009-26." comments may be sent by mail or may be hand-delivered. The Announcement includes addresses for submissions made in those ways.

A recent article in the Chicago Tribune will likely fuel concerns that nonprofit hospitals are getting tax breaks without providing enough charity care. Investigative reporters found evidence that a number of nonprofit hospitals in the Chicago area will stabilize patients who arrive at the ER but then send them to the Cook County's Stroger Hospital, the government-run hospital in Chicago. The result has been severe overcrowding at the county hospital and concerns about the costs transferred to the county along with the patients. Patients arrive at Stroger with discharge slips directing them to go to the county hospital. One man had a broken jaw, one had a tumor, and one discharge slip directed a woman to "Follow up at Cook County Hospital for uterine tumor surgery."

The hospitals contacted in connection with the story deny that they steer patients to Stroger and say that they are just trying to allocate care by "triaging out" patients who do not belong in an ER.

The article points out that the nonprofit hospitals spend only 2% of their revenue on charity care and for-profit hospitals spend 1% - without the benefit of the tax breaks the nonprofit hospitals are getting. Stroger is there as a safety net, but Stroger is funded with tax revenues and has suffered staff and service cuts recently. Overcrowding has become a huge concern at Stroger, and Stroger cannot simply "triage out" patients who have nowhere else to go.

This article provides additional information for the ongoing discussions in Illinois about the level of charity care that should be required for exempt status.